On a troubled track

| Updated on January 28, 2021

Indian Railways needs to step up capex and curb subsidy on passenger fares

It has been a tough year for Indian Railways, thanks to the pandemic-induced drop in passenger traffic. Despite freight traffic shifting from road to rail this fiscal, as reported by this newspaper, the Railways’ earnings dropped by 29 per cent as on January 10 (₹98,390 crore against ₹1.38 lakh crore). Interestingly, despite the negative growth in the economy, freight revenues at ₹87,303 crore were just 3 per cent below last year’s levels, but passenger revenues were down 81 per cent to ₹7,681 crore from ₹41,054 crore last year. While the Railways struggles to generate an internal surplus (its operating ratio, or the ratio of operating expenses to revenues, is likely to exceed the target of 96.2 per cent for this fiscal unless the Railways reports a 30 per cent reduction in expenditure), the bigger task ahead is to generate funds for safety and network improvement. The challenge is to ensure that the freight advantage wrested this year can be sustained through lower tariff, containerisation and faster speeds. The National Rail Plan released last month rightly envisages a steep increase in network capacity to ensure that the share of rail in freight generated increases from 27 per cent at present (2018-19 data) to 45 per cent in the medium term, at the expense of road transport which accounts for a share of 64 per cent presently. Given the higher energy efficiency of rail over road, this will translate into reduced fuel consumption and benefit the economy. The key is to generate the resources to make this happen.

On the revenue side, the loss on account of passenger services (at about ₹40,000 crore) almost wholly wipes out the gains from freight operations. The subsidy on passenger fares should be done away with, while reducing cost of operations. But the problem is there is a limit to which fares can be hiked, in view of competition from air and road travel. Owing to Pay Commission awards, salaries and pensions account for two-thirds of the Railways’ total expenditure of ₹2.19 lakh crore estimated for this fiscal, and close to the budgeted gross traffic receipts this year. It remains to be seen if current expenditure can be covered this time. An additional allocation may be needed.

Capital outlays (₹1.6 lakh crore in 2020-21) are primarily being met through market borrowings (70 per cent) and budgetary support ( 25-30 per cent). This is a departure from the trend, as borrowings generally account for just over half the capex, as PRS Research points out, with the Budget largely forking out the rest. The story is likely to be the same next fiscal as well given the budgetary resource constraints. The PPP model is a pragmatic option to balance the resource constraints but it has to be done with regulatory checks and balances. The National Infrastructure Pipeline report has pegged a rail requirement of ₹13.6 lakh crore over five years. The Railways needs to adapt to the new realities.

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Published on January 28, 2021
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